Summary: Because of soaring uranium prices, hundreds of companies have formed to capitalize upon the latest craze. How do you avoid being fooled? Look to ISL uranium companies. About 21 percent of the world’s nuclear reactors are now fueled by uranium mined using this method. How do you evaluate the many uranium companies now developing their ISL operations?
Now that the spot uranium price has sustained above $40/pound, after a 20-year drought and a bottom of $6.40/pound at the end of December 2000, hundreds of junior exploration companies have thrown their hat into the ring. Both Canadian and Australian junior uranium companies hope to raise the big money required to bring a uranium property into production.

A perceived uranium supply crunch has added to this frenzy. As occurred with previous uranium cycles, only the strong will survive.
While numerous Canadian junior exploration companies hope to find a new discovery in various uranium-prospective regions through Canada, a safer investment strategy is to speculate on companies, whose properties were previously drilled during the uranium bull market of 1974-1980). Some of those properties had uranium deposits delineated by major oil and uranium companies, who did not blush at spending tens of millions of dollars in exploration.
Some of the newly arrived uranium companies acquired those drilling databases and their properties, which were abandoned by the previous owners.

Some companies have been actively moving their projects forward to production, using a more environmentally friendly mining method than an open pit or underground mine. It is called In Situ Leach (ISL) uranium mining, and the operation is much like a water treatment plan. Oxidized, or carbonated, water is pumped into an orebody, and uranium is flushed into a processing plant. These are relatively inexpensive to install, possibly for as little as $10 million.
There are pitfalls when investing in those companies which plan to establish ISL operations. During the initial phase of this bull market, a common myth, circulated among investors, had been “pounds in the ground.” How many pounds of uranium oxide, or U3O8 for short, does a company have in the ground? The more pounds a company claimed, the higher its market capitalization ran. Once you sift through the companies with very real prospects from those who are cheerleading their “pounds in the ground,” you should have a realistic short list.
These are the four key questions which must be answered if you wish to minimize your risk when investing in uranium stocks:
• How permeable are the ore bodies you plan to mine?
• What is your average grade?
• Over what area does your rollfront extend?
• What is the depth of your ore body?
One of the most important factors to consider is the permeability of the sandstone, from which the uranium will be mined. Permeability is the flow rate of the liquids through the porous sandstone.

Knowing what the permeability of the orebody will let you know how much water you can get through the sandstone formation. Harry Anthony, an internationally recognized ISL expert, noted, “You need higher grade ore for tight formations. With high permeability, you can space your wells further apart.”
The make-break point for a formation’s permeability is its Darcy rating. How high is the Darcy? A typical Darcy can range from minus 1000 to plus 3. The higher the Darcy, the more permeable the formation. This helps determine how economic the orebody is. An acceptable range would be one-half to one Darcy. What is a Darcy? Uranerz Energy CEO Glenn Catchpole, who is also a hydrologist, said, “It is gallons per day over feet squared.” He added a pure hydrologist would calculate the feet per day or centimeters per second to get a more accurate permeability assessment.

With low permeability in a tight formation, you may need to space more wells in a typical well field pattern. While explaining that costs are fixed and variable, Anthony computed the cost of a production well for a 500 foot deposit at $15,000. An injection well could cost $11,000 to install. By comparison, in New Mexico, where the deposits are wider and of higher grade, a 2000-foot production well might cost $27,000 and the injection well could cost $18,000, and it would still be economic. Obviously, the deeper the deposit, the more it will cost to extract the uranium. Not only will the capital costs increase, but operating costs will be greater.
Uranium grades can be a contentious point. “Grade is the driving force,” Harry Anthony shot back. We asked him about companies which said they could run an economic ISL operation with grades as low, or lower than 0. Anthony laughed, “They’d be out of business before they started.” Strathmore Minerals’ president David Miller offered a more technical analysis, “That will not likely have enough recoverable pounds. The operating grade feeding the plant will be too low.” What is the best grade? Miller wanted to see properties with deposits that average on the order 0.5, 0.10, or 0.
Uranium grades can impact the cost of operating an ISL plant. An ISL plant may operate at 5000 gallons per minute.